Prudential Liquidity policy for banks released

Acting Governor Grant Spencer said the policy sets various balance sheet
requirements and disclosure obligations for banks around their internal
liquidity management.

"The purpose of the policy is to ensure that banks maintain strong
liquidity positions, making them more resilient to both short term and long-
lasting funding shocks," Mr Spencer said.

"The vulnerability of the banks to liquidity shocks has been our main
concern for the stability of the New Zealand financial system during the
international financial crisis.

"While the funding markets have shown encouraging signs of improvement
in recent months, we want to ensure that the New Zealand banking system is
better protected against any future shocks of this sort."

The Bank began liquidity policy discussions with banks in early 2008, and
issued a consultation paper in October 2008. "We received a large number
of helpful submissions and have amended the policy in a number of important
respects as a result. In particular, we have made substantial changes to some
of the key definitions within the original draft policy, to ensure workability
and ease of implementation for the banks."

Mr Spencer noted that, in light of the current pressures faced by banks, the
new prudential liquidity requirements will be phased in over a two-year period.

"Some banks will be little affected as they are already close to the
new policy requirements. Others will need to continue lengthening the maturity
of their funding in a gradual and measured way," he said.

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